Donald Trump continues to be the spotlight of the world after he was sworn in as President of the United State on Jan 20. Within two weeks after taking the office, Trump has already signed several executive orders, including the abolition of Obamacare, withdrawal of the Transpacific Partnership Agreement (“TPP”), construction of fence along the US-Mexico border as well as a halt on the US refugee program. As we believe Trump will continue to issue executive orders to honor his campaign commitments, we advise investors to avoid sector with potential political risk such as export-oriented industry, and accumulate financial stocks with international exposure.
The executive order is the executive power granted to the President under Article 2 of the United States Constitution. It is a written directive issued by the President to the Federal Government without being approved by Congress. More than 13,000 executive orders have been issued since the first US president, George Washington. In fact, Congress can check and balance executive orders issued by the President by overthrowing or amending of executive order through legislation, or even refusal of making relevant funding. Nonetheless, all laws require the President to sign to become effective, implying that the President has the veto right to overthrow the result of congressional scrutiny. The Congress needs the support of two-thirds of parliamentarians in order to overthrow the President’s decision.
Reviewing Trump’s first ten days as the President of the United States, we can see his strong will to fulfill his election commitments. Within the first few days of his Presidency, he issued executive order to formally withdraw from the TPP, and claim to renegotiate North American Free Trade Agreement (“NAFTA”) with Mexico and Canada. He also introduced the largest deregulation action of the United States, eliminating 75% of existing regulations to boost economic development.
As for the immigration and national security policy, which causes a highly controversy internationally, he issued executive order to construct a fence along the US-Mexico border to block illegal immigrants, and asked Mexico to pay for the expenses. When the Mexican government expressed opposition, Trump claimed to impose a 20% tariffs on all Mexican imported goods to cover the construction cost, deteriorating the bilateral relationships between the US and Mexico.
Although the Congress has the power to overthrow Trump’s executive orders, the House and Senate are currently controlled by the Republicans, with Democrats only accounting for 46% and 44% of the House and Senate respectively, far below the two-thirds majority. Even if some Republicans do not support Trump’s policy, it will be difficult to get more than two-thirds support in both House and Senate.
We expect Trump will continue to utilize executive order to implement controversial policies. If Trump introduced any policy against China, such as the imposition of heavy tariffs, relevant industries will be affected. We thus recommend investors to avoid export-oriented stocks, and accumulate financial stocks with international exposure, which is expected to be the beneficiary of financial deregulation.